Virtual Power Plants And The Future Ubiquity Of Energy Creation
Globally, the use of renewable energy grew in 2020, representing about 90% of the total power capacity added for the year according to the International Energy Agency. In addition, renewables are positioned to overtake coal this decade as the most popular way to generate electricity.
The Sanders Institute shows that solar is now cheaper than natural gas and coal across most of the US. Those cheaper costs along with government efforts to slash climate-damaging emissions will increasingly push coal off the grid and give renewables 80% of the market for new power generation by 2030, the IEA says.
This accelerating trend is paving the way for the virtual power plant or VPP.
Defining the Virtual Power Plant
“Virtual power plants are a network of grid-connected assets that you could control to provide support to the grid,” said Xin Jin, who serves as a senior research engineer at the National Renewable Energy Lab
Ram Narayanamurthy, technical executive of decarbonization of buildings and communities at the Electric Power Research Institute (EPRI), that conducts research projects for public benefit, says that VPPs have been around since 2012 when smart thermostats arrived and have been evolving ever since.
“By looking at data from the past eight years, we have a better understanding of how customers are using devices connected to the grid,” Narayanamurthy said. “There is now also two-way conversation that helps providers understand what the customer needs and wants. Some VPPs are driven by renewables, however renewables are more variable, so the VPP becomes an aggregator connecting consumers to end use systems.”
Virtual power plants are now being designed in new construction residential projects, along with being retrofitted into existing residential projects. Key to making them work in both situations is a strong collaboration that will ultimately make the utilities relevant and the renewables affordable.
For example, Wasatch Group, a Utah-based real estate developer, partnered with the home energy company sonnen and utility group Rocky Mountain Power to build 600 apartment virtual power plant project in Utah, called Soleil Lofts.
Ryan Peterson, president and managing partner at Wasatch Energy Group, a company that creates, develops and manages clean energy solutions, says that the organization was looking for a better return on its energy profile and to its tenants, so it started looking at batteries and then created the partnership with sonnen, which led to Soleil Lofts. The project is scheduled to complete in May 2021 and will include 600 units, a 5.2-megawatt power system with 622 individual batteries, for a total of 12.6 megawatt hours, making it the largest aggregation of energy for a community.
Blake Richetta, CEO of sonnen US, calls the property, “the first of its kind all electric, solar powered property in the world.”
The project operates on a concept called swarm-controlled batteries that manages the batteries and the unpredictability of solar to help the grid.
“Solar by itself is not the solution and cannot be the solution,” Richetta says. “When there is too much solar, it becomes a nuisance. Soleil is 5 megawatts of solar, so it can create congestion and be a burden on the wires. Then it would have to be transformed up at the substation level, which is very inefficient.”
What the three collaborators created at Soleil Lofts is a blueprint on how to replace a power plant to transition away from fossil fuel-based utility. Rocky Mountain Power is proving real value at its local substation, and even a gain when dispatched solar is allowed to pump into the grid. Instead of having a very inefficient peaker plant fire up, they can export from the Lofts’s batteries back into the grid so that the peaker plant doesn’t have to use its expensive process.
“Soleil Lofts has been far more efficient than we expected,” Peterson said. “When tenants see a battery, they are more conscious of energy use. Soleil Lofts not only produces more than it can consume, it is net positive.”
Wasatch and sonnen are also proving the concept in a retrofit project in California that would eventually extend into seven properties, starting with a 417-unit disadvantaged community project with 418 batteries. The remaining six projects are in underwriting and not announced yet.
“We want to prove that this can be scalable with existing communities,” said Richetta. “The second part of the thesis, is to prove that we can do this and provide clean energy for low to medium income folks. The third thing is to be able to show that this can be done in California, which has aggressive clean energy guidelines, the danger of wildfires, and frequent power outages.”
To select the seven projects, Wasatch had to look at roofs and the project’s orientation for good efficient production. Plus, each unit’s energy bill was scanned for usage during the past 12 months to make sure it would line up with the generation side. Peterson says they are not limited by geography to bring this across the country.
To do the retrofit, solar is installed in community spaces and on rooftops to create a renewable energy generative facility or REGF. Plus, batteries are installed outside of every unit. The solar power that is collected is distributed to the apartments as the apartment needs it.
The tenants get huge benefits, including about a five percent discount on utilities, carbon neutral living, and security from power outages.
“The residential tenant, including low-to-medium income residents, literally receives all of the benefits of the highest quality battery system in the market and does nothing but pay their electric bill, per usual, but at a discount,” Richetta says. “A tenant can leave their apartment whenever their apartment lease is up, exactly like a typical apartment. The investor is essentially underwriting the apartment complex owner and ultimate manager of the VPP, not the tenant.”
That being said, the retail list price of the sonnen battery, ecoLinx20 is $51,127, which is paid by the developer, and typically negotiated by the volume of the project. The battery and software it runs on are supported by sonnen for 25 years.
The cost to the utility varies greatly depending on the type of utility, along with the market supply and demand.
The developer monetizes the virtual power plant at a 9% to 11% internal rate of return, over that 25-year time period, which would include a potential battery replacement or inverter replacement.
The developer earns revenue from the solar power that the tenant uses in their home, either because the tenant directly consumes it or as a result of the solar being time shifted and stored in the battery, to be consumed later. Meanwhile, all power consumed from the utility grid is paid to the utility company, just like any normal electric bill.
The developer also has the opportunity at another revenue stream by dispatching the battery swarm dynamically and when needed most, into the CAISO Wholesale Energy Markets.
“This greater electrical system value is what makes the VPP so magical,” said Richetta. “By participating in a DRAM or Demand Response Auction Mechanism, the Day Ahead Energy Market, the Real Time Energy Market and potentially, in spinning reserves, the battery swarm can begin to replace the traditional centralized fossil fuel-based power plant, while decongesting and adding flexibility to grid operation.”
Finally, the developer also can take advantage of the investment tax credit, state energy storage incentives and accelerated depreciation to increase the value of the investment.
All of this data also supposes that the developer is holding the property and not selling, and that the developer will end up earning back much more than their initial investment, after tax credits, incentives, depreciation, and monthly electric bill and grid services revenues for 25 years.
RMP is going statewide with the program it created with sonnen and Wasatch in Utah by creating the Distributed Battery Grid Management System (DBGMS) that will bring behind-the-meter batteries to thousands of homes to connect in a single intelligent network. The objective of the project is to improve the electrical grid, and at the same time, to benefit the public.
The DBGMS plans to serve RMP’s entire service territory in the state of Utah. This program will offer RMP rapid swarm control of batteries with software co-developed by sonnen and RMP, using sonnen’s hardware along with batteries from other manufacturers to expand the program’s learnings.
The RMP DBGMS program goes beyond the software to offer customers incentives to purchase a qualified battery and PV system and to join the RMP network of batteries throughout Utah. By joining, customers will give the program the ability to control their battery to maximize the use of their solar.
The RMP DBGMS will be utilized for grid decongestion and supplemental capacity during peak demand periods as well as ancillary grid services like frequency response.
Other programs are popping up across the country. In Vermont, the utility will pay consumers $15 per month to have a battery and give the utility access to the battery.
“There is a value of having that battery, called resource adequacy,” said Narayanamurthy. “Utilities are paying you to have that battery to use when there aren’t enough plants available to serve the load, it is like an insurance policy for the utility.”
The virtual power plants present a very attractive alternative to power plants for a variety of reasons. First, they are a non-wire alternative, requiring a lot less infrastructure and therefore lowering the costs for the utility to manage, which hopefully could be passed along to the consumers.
Plus, there are environmental benefits from photovoltaic batteries because clean energy is produced, reducing pollution. As demonstrated by the Soleil Lofts, the program also reduces the cost of the utility bills.
“Finally, if there is a problem in the grid or disruption from a natural disaster, you can operate the home without the grid,” said Jin. “We saw that in California fires this year, PG&E cut power for hours or days, and if you had PV and battery storage in your home, you could keep power going to survive that interruption.”
Still Room to Learn
As the numbers above show, batteries are expensive. Narayanamurthy says that for consumers, the price of the battery is about $11,000 installed; however, there can be savings in some places where incentives and rebates are offered.
Jin agrees that the costs of the hardware can be prohibitive. He did a study that calculated the battery’s return on investment, coming to the conclusion that it took at least 10 years to pay off without any incentives or rebates, which, right now, is the average lifespan of a battery, only if it is stored and used properly.
“Because of the expense, the main motivation for homeowners to buy batteries is resilience instead of utility bill savings,” Jin said.
On top of that, there has to be an aggregator to connect the battery to the grid. Narayanamurthy points out that consumers need to know how much they have and what they are giving up, which isn’t available yet, so the cost benefit tradeoffs are still in question.
“The biggest challenge is that the integration of the products with the markets is not seamless,” he said. “There are no standards for the market. It is a very multi-step structure to create the VPP that can be bulky and cumbersome.”
Jin also notes many utilities have constraints on how much battery and PV can be installed in the home to avoid causing problems for the utility distribution system, leading to plenty of room for improvement on the regulatory side.
Yet, that’s not all. Development designer Alicia Liegel Berg points out the hesitancy of the industry, particularly in the midwest, to take on something new.
“The trades tend to want to do what has always been done,” she says. “It is easy to price, and they know what to install. There is a lot of risk being the first. The second factor is the price often tops the scales of the ProForma and eats into the projected returns and energy efficiency technology is often the first to go.”
This, she says, could be modestly improved by eliminating the requirement to have a gas-run generator, which currently takes up a lot of space and would therefore be a cost savings.
Kyle Hagerty, an associate editor at Propmodo, wrote that electricity has been hailed as one of the most important technological advancements in history. In order to make our electrical use more efficient and sustainable, experts predict that in the next 20 years more money will be invested into electricity than ever before, which could result in a new era of electrical power that will fundamentally change how every structure uses electricity.
The growing ubiquity of energy producing products, from vehicles to exercise equipment, is blurring the lines between industries and even devaluing energy. Josh Brooks, senior associate of electricity practice at global energy research firm Rocky Mountain Institute, wonders if everyone can generate a kWh, how it will be able to reshape demand.
“Demand has flatlined,” Brooks says. “Over 30 years, the largest advance has been efficiency increases. As it becomes more readily available, the barriers between different industries are starting to blur. It’s no longer just a vehicle, it’s a grid asset. It’s an opportunity. Ultimately, the generation of kWhs will be democratized as consumers join utilities in electricity production. Utilities will refine and expand business models – recognizing the opportunities created by increased electricity productivity, grid flexibility, and end use electrification. Consumers, likewise, will utilize those new opportunities and both parties will usher in the utility of the future.”